Cost conundrum

It’s barely a month into the new TV season and CBS’ star-studded heist drama “Smith” is already off the air. NBC’s “Kidnapped,” a thriller shot in New York City, has been banished to Saturday night for the remainder of its run. And the ratings for ABC’s massively promoted hostage caper “The Nine” have been dropping.

The shows have one thing in common: They are some of the priciest new dramas in what may be the most expensive TV season in history, as studios pull out all the stops with intricate storylines, sweeping scope, large casts and $10 million marketing blitzkriegs, all in an effort to grab viewers’ attention.

To many TV executives, their business is starting to resemble the film industry, where studios invest heavily in tentpoles that have one big opening weekend to prove themselves.

The irony is that the rising spending in network primetime is happening at the very moment that media congloms are making concerted efforts to keep feature film budgets under control.

“I think it is some indication of either myopia, naivete or just plain brain damage on the part of the industry,” says News Corp. chief operating officer Peter Chernin. “Things are interconnected in this world, and I think the significant issue is that the fundamental economics of the television business are under a real challenge right now.”

Network advertising sales were flat or up just slightly at this year’s upfronts. Meanwhile, the costs of programming across all time periods at the four major networks rose 9% to $11.92 billion this year, from $10.97 billion in 2005, according to estimates by Kagan Research.

“At the end of the day, costs, whether they are talent costs, production costs, marketing costs, etc., are going to align themselves with reality,” Chernin says. “And there are two ways for that to happen: It can either happen in an orderly process, with everyone trying to exert some discipline, or it can happen in a disorderly process. What you have seen in the movie business is some combination of both of those. When you see hundreds of people being laid off, that is disorderly, and it is harmful to all of the people involved. The same thing is going to happen in the television business. Costs are going to align themselves, whether anyone wants to hear it or not.”

In mid-October, NBC announced it was laying off some 700 employees and, in an effort to get costs under control, said it plans cheaper programming (such as nonscripted fare) in the 8 p.m. hour, a strategy already used by ABC. Such mandates for fiscal discipline certainly could raise the contentiousness of upcoming talks between studios and Hollywood talent guilds, which are preparing to negotiate new contracts starting next year.

Industry sources estimate the average cost of a first-year drama rose from about $2.4 million per episode in 2004 to $2.8 million this year. You can see it on the screen, whether it be the massive set-within-a-set on “Studio 60 on the Sunset Strip,” James Woods headlining “Shark” or “Jericho” staging a nuclear apocalypse.

Even the few sitcoms on the air come with bigger pricetags, as networks gravitate toward more single-camera comedies like “My Name Is Earl.” Because of the method of production, they cost $1.5 million to $1.7 million per half-hour, as much as 35% more expensive than a multicamera comedy.

Compare that to what has happened to the average cost of a feature film: Production costs dropped slightly last year, to $60.0 million from $62.4 million in 2004, according to the Motion Picture Assn. of America. There are still ample examples of heavy spending: Universal is trying to keep the costs of the effects-laden “Evan Almighty” to less than $175 million while two comedies, Fox’s “Night at the Museum” and Sony’s Nancy Meyers pic “The Holiday,” have budgets above $100 million, sources say.

Meanwhile, the race to make summer tentpoles continues, and “the single biggest cause of these overages is a forced release date,” says Bill Block, CEO of financing and production company QED Intl.

But studios have been pulling the plug on big-ticket projects like “Halo” and the Jim Carrey-Ben Stiller comedy “Used Guys,” slashing producing deals and demanding less generous star paydays. On a lesser scale, there was Sony, which canceled plans to make the drama “Against All Enemies,” based on the book by counterterrorism chief Richard A. Clarke, after it could not come to terms with its chosen star, Sean Penn.

“I think more than ever they are trying to bring down costs,” observes producer Mark Johnson. “In the past, it would be, ‘We’re making this movie.’ Now it’s, ‘We’re making this movie if you can get the costs down from $60 million to $35 million.’ Everybody is constantly running numbers.”

“Halo” was to be a bigscreen, $135 million adaptation of Microsoft’s videogame, and Universal and Fox won the rights to make it with Peter Jackson on board as producer. At $120 million, “Used Guys” had not only the star pedigree, but Jay Roach on board as director. Both projects fell apart over studio concerns about high budgets combined with having to pay out significant gross points to talent and other major players.

Studios also have buffered their spending by bringing in private equity money to finance film slates. They’re demanding deals for stars that allow them to share in a film’s returns when a film breaks even, rather than when money starts flowing in from the box office.

In short, it’s the type of austerity the TV business has been famous for.

And while TV execs have a long way to go before their spending habits match that of the film world, this season there is a marked difference in the way that shows resemble features in their production quality and in their marketing campaigns.

To launch its shows, NBC turned up the volume and hiked its marketing budget about 15%-20% across a variety of media, including radio spots, glossy magazine ads and digital promotions with Netflix and YouTube. Fox actually spent less this year, but that didn’t stop it from engaging in elaborate campaigns with sister company MySpace, or a stunt last week in which a feature-like trailer for “24” debuted on the Jumbotron in Times Square.

“Over the past couple of years the pressure to succeed has become increasingly prevalent, and I think this year is the worst it has ever been,” says Chris Carlisle, exec VP of marketing for Fox. “It is about creating events. You are constantly looking for that big noise you can make.”

Marketing budgets have been rising for years, but the equation changed in 2004, when ABC concentrated its marketing muscle on “Desperate Housewives” and “Lost,” an effort estimated to have cost between $10 million and $20 million. Since then, other networks have followed the same strategy, zeroing in on a couple of new shows and making them into events.

“The point where it ratcheted up significantly is when ABC launched ‘Desperate Housewives’ and ‘Lost,’ ” says John Miller, chief marketing officer of the NBC Universal Television Group. “Everybody sort of figured that was the new game. It got to be so that was the benchmark.”

It is a far cry from the 1970s and ’80s. To get “The Cosby Show” on the air, Miller recalls, the network launched it with “some on-air promotions, some radio and some TV Guide.”

The change was felt not only in advertising but in production. Shows like “CSI” and “24” already had pushed the envelope in their techniques and formats, but “Lost” created even greater expectations. To compete to get onto the fall schedule, studios have delivered pilots with many more scenes, more intricate plots and more location shots.

Where once production seemed to be migrating to Vancouver — where studio shows like “The X-Files” could take advantage of up to a 30% budget savings — production has largely come back to Los Angeles and even New York.

“Nothing will ever replace a great story well told, but there is no question we live in a high-def world,” says Jonathan Littman, president of Jerry Bruckheimer Television, which produces “CSI” and “Without a Trace.” “We live in a time where networks are much more ambitious in what they are looking to program, and that is a good thing for TV overall.”

Another cost factor, per studio execs, is the sheer size of show casts, creating additional expenses ranging from more makeup artists to more dressing room trailers.

“Because it is competitive among the networks, the networks are very aggressive about stretching the deals for talent that they think can make a difference in the success of a show,” says Gary Newman, president of 20th Century Fox Television. “That has always been the case, but it just feels that it is more the case than ever before.”

The pilot for the star-heavy “Studio 60,” for instance, was said to cost more than $6 million, while sources say its price per episode hovers around $2.8 million to $3 million.

“We are now shooting pilots to be three, four, five times the episodic budget,” Chernin says. “In what sense is that a prototype episode? The industry is rife with beautiful, extraordinary-looking pilots that bear no resemblance to the series. That is just lack of discipline.”

Back in the 1970s, with familiar formulas, fewer scenes and smaller casts, shows like “Marcus Welby, M.D.” or “Barnaby Jones” took six or seven days to shoot. Now a lot of dramas are taking nine or 10 days, or deploy second units.

“What drives up costs are the same kind of factors that have driven up costs in the film business for years,” says Barry Jossen, exec veepee of Touchstone Television. “It is the depth of the talent pool, and the competitive markets that are created for that talent pool. Costs get driven up by supply and demand.”

As the exec who oversees “Lost” and other Touchstone shows, Jossen gets ribbing from executives at other studios, who come up to him and say, “It’s all your fault. You did ‘Lost,’ and that changed everything.”

He challenges the notion that spending, while on the rise, is profligate. Before the pilot of “Lost” was made, there was a lot of consternation within the Walt Disney Co. as to the high price of an episode that included the re-creation of a plane crash and location shooting in Hawaii. Despite reports that it cost $14 million, Jossen says it was “significantly less than that,” and even came in under budget.

“We had realistic expectations about what it was going to take, rather than have that everyday dialogue of, ‘Oh my God, this is costing so much more and taking so much longer and what are you guys going to do?’ ” Jossen says. “We got to be much more focused on making sure that it was creatively as good as it could possibly be.”

But in their zest to replicate the success of “Lost,” networks have taken an extra gamble, as they invested heavily in serialized dramas as opposed to self-contained hours. It is all but essential that viewers join the show from the start, just to keep up with what’s happening.

As Carlisle says, “If you don’t get people in the beginning, it is nearly impossible to get them when the ship has sailed. There is definitely a glut this year of serialized dramas, and I think you also saw a lot of things that didn’t work.”

The public’s thirst for investing in such series appears to be finite, leaving studios left holding the bag if a series does not work. For example, despite a promising premiere, Fox’s abduction thriller “Vanished” has been relegated to Friday night. Sony Pictures Television produced NBC’s “Kidnapped” and the series already has been sent to Saturday nights, where it will have a truncated 13-episode run to wrap up its plot.

” ‘Kidnapped’ remains a mystery to us because the quality was so good,” Miller says. “We just couldn’t get people in the door. … It is not so much about the quality of these shows or the quality of other people’s shows. It is about the preciousness of people’s time.”

So what will happen?

Studios and networks have tried in the past to get the cost of scripted fare under control, with uneven results. Jeff Zucker tried to usher in a new austerity in 2002 by making cheaper pilots, but the results, including one called “St. George’s Island” that was shot in South Africa for $1.1 million, went nowhere.

In 2003, ABC took the draconian step of slicing the $6.5 million per episode budget of “The Practice” in half, but with six actors given pinkslips, including star Dylan McDermott, it created an entirely different show.

Dick Wolf predicts a shift away from serialized dramas, in part because they will have a hard time commanding the rerun revenue that procedural shows like his “Law & Order” franchise does. “The math just doesn’t make any sense,” he says.

As one exec says, “Something has to give.”

With new uncertainty about the backend market — syndication and DVD sales — it is looking harder to deliver profit.

“You are in the risk business,” Newman says. “You are going to have a lot more failures than successes. Traditionally, a couple of successes can pay for your failures but also deliver a nice return on your investment. What is really scary about our business right now is the road to success is far less certain than it used to be.”

Networks and studios are talking about trying to adapt the same techniques that allow cable networks like TNT and USA Network to program dramas like “The Closer” and “Psych” at much cheaper rates. Production units like Warner Horizon and Fox 21 were set up for just that purpose. The differences, of course, will be that shows will have smaller casts and fewer scenes.

Some execs predict networks will further diversify their schedules, mixing cheaper reality fare with pricey dramas. That’s the direction NBC signaled when it said it would change its strategy for the 8 o’clock hour.

In its own way, you could say that’s akin to the studios’ tentpole strategy: event pics supplemented by the much cheaper fare from their specialty divisions.

“Network revenues are growing at a rate that is much lower than the rate at which costs are rising,” Jossen says. “That doesn’t make sense for any other business — why should it make sense here?

“There is no doubt that change is coming, and it is probably happening as we speak,” he says. “We all just don’t see it yet or don’t know what it is, but it is definitely happening.”